A Market Mechanism for Sustainable and Efficient Resource Use Under Uncertainty
27 Pages Posted: 19 Jul 2017
Date Written: June 21, 2017
Sustainability and efficiency are potentially conflicting social objectives in natural resource management. We propose a market mechanism to allocate use rights over a stochastic resource to private managers. The mechanism endogenously determines the maximal tenure length guaranteeing that the sustainability goal is obeyed for sure over the entire period. In addition, the mechanism achieves efficiency, i.e. it maximizes the expected present value of resource rents that accrue to society. Potential applications include improved fishing agreements between developing countries and distant-water fishing fleets.
Keywords: auctioning-refunding-mechanism, efficient resource allocation, renewable resources, stochastic resource dynamics, sustainability
JEL Classification: Q200, D440, D820
Suggested Citation: Suggested Citation